Category Archives: Economics

When we buy something do we control anything?

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In new routers Comcast has decided to enable another WiFi signal that is public, but separate from your network, but still using your data. Initially, you were able to fairly easily turn off the the second network, however, Comcast has started to make it much more difficult. This raises the question in my mind, around if you’re paying for a service, shouldn’t you be able to control what is happening with that service within your house? It also raises the concern in my mind that the second network will use your data cap in the areas that have data caps – and Comcast plans to expand those caps even though we hate them.

Similarly, Uber, has done some pretty horrible things around data privacy of their users. Similarly, Facebook has conducted experiments on their users and what they display. In Uber’s case you buy the service, in Facebook, you pay for it through seeing ads. In each case you do not control anything done with your data once you enter the agreement to use their services.

Apple has been accused, and admitted to, deleting songs added to an iPod by a non-iTunes service. This is even more problematic in my mind than Amazon deleting something from your Kindle, because the iPod is a physical object that you own that was only updated whenever you connected the iPod to your computer. Furthermore, Apple was deleting things you owned without your consent from a product that you own because they didn’t want their competitors content on a product in their ecosystem. It is likely many people didn’t notice because you can have so many songs on the device, but I’m sure some people were confused.

Then there is the “licensing” that happens whenever you buy software, even whenever you buy a physical copy, companies like Autodesk have sued over the right to sell that “license” again. They sued and won over someone selling their physical disks, which is pretty insane, but they wanted to protect their product and claimed that it violate’s their licenses.

In all of these cases, a company is doing something related to a service you purchased without your consent or input into how they use it. Effectively, you don’t really control the stuff you buy. Even though we all feel like we own everything we buy, we really don’t. We don’t have control over the services we purchase and this is going to get worse over time. It will get worse, because software is eating the world, and is now in many more traditional industries like mining equipment manufacturer Joy Mining. Michael Porter wrote a really lengthy article about how software is having serious impact on the future of competition he argues that software will be everywhere and in fact companies need to build the internal capability to create software. As users of these new technologies we need to understand how companies use our data and what control we actually have on the services and products we buy.

Is AI going to kill or us bore us to death?

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The interwebs are split over the question of if AI is going to evolve into brutal killing machines or if AI will simply be just another tool we use. This isn’t a debate being asked by average Joes like you and me, it’s being asked by some pretty big intellectuals. Elon Musk thinks that dealing with AI is like summoning demons, while techno-optimist Kevin Kelly thinks that AI is only ever going to be a tool and never anything more than that, and finally you have Erik Brynjolfsson an MIT Professor that believes that AI will supplant humanity in many activities but the best results will come with a hybrid approach (Kevin Kelly does use this argument at length in his article).

Personally I think a lot of Kevin Kelly’s position is extremely naive. Believing that AI will ONLY be something that’s boring and never something that can put us at risk is frankly short sighted. Considering that Samsung, yes the company that makes your cell phone, developed a machine gun sentry that could tell the difference between a man and a tree back in 2006. In the intervening 8 years, it’s likely that Samsung has continued to advance this capability. It’s in their national interest as they deployed these sentries at the demilitarized zone between North and South Korea. Furthermore, with drones it’s only a matter of time that we will deploy an AI that will make many of the decisions between bombing and not bombing a given target. Current we have a heuristic, there’s no reason why that couldn’t be developed into a learning heuristic for a piece of software. This software doesn’t have to even be in the driver’s seat at first. It could provide recommendations to the drone pilot and learn from the choices when it is overridden and when it is not. Actually, the pilot doesn’t even have to know what the AI is recommending and the AI could still learn from the pilot’s choices.

AI isn’t going to be some isolated tool, it’s going to be developed in many different circumstances concurrently by many organizations with many different goals. Sure Google’s might be to find better search, but they also acquired Boston Dynamics which has done some interesting work in robotics. They are also working on developing driverless cars, which will need an AI. What’s to say that the driverless AI couldn’t be co-opted by the government and combined with the AI of the drone pilot to drop bombs or to “suicide” whenever it reaches a specific location. These AIs could be completely isolated from each other but still have the capabilities to be totally devastating. What happens when they are combined? They could at some point through a programmer decision or through an intentional attack on Google’s systems. These are the risks of fully autonomous units.

We don’t fully understand how AI will evolve as it learns more. Machine learning is a bit of a Pandora’s box. It is likely that there will be many unintended consequences, similarly to almost any sort of new technology that’s introduced. However, the ramifications could be significantly worse as the AI could have control over many different systems.

It’s likely that both Kevin Kelly and Elon Musk are wrong. However, we should assume that Musk is right while Kelly is wrong. Not because I want Kelly to be wrong and Musk to be right, but because we don’t understand complex systems very well. They very quickly get beyond our capability to understand what’s going on. Think of the stock market. We don’t really know how it will respond to a given quarterly earnings from a company or even across a sector. There are flash crashes and will continue to be as we do not have a strong set of controls over the high frequency traders. If this is extended across a system that has the capability to kill or intentionally damage our economy, we simply couldn’t manage it before it causes catastrophic damage. Therefore, we must intentionally design in fail safes and other control mechanisms to ensure these things do not happen.

We must assume the worst, but rather than hope for the best, we should develop a set of design rules for AI that all programmers must adhere to, to ensure we do not summon those demons.

What can Interstellar Teach us about the tragedy of the Commons? (spoilers)

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This post will contains some minor spoilers for the movie Interstellar. If you don’t want to read any spoilers, then stop reading now.

The tragedy of the commons represents a common good that without proper communication and planning can be destroyed through maximizing an individual’s utility. What does that mean? Well, a group of ranchers are sharing a field. One of them decides to make some additional money by buying, just ONE more head of cattle. He lets it eat in the grass that everyone else is sharing. No negative impact happens, the farmers discuss the number of cattle, which they had all agreed upon beforehand to be a set number. Since he increased his, everyone else does the same, eventually the land will not be able to sustain all the extra head of cattle, and the next year cattle start to die of starvation. Creating a crash in the economy.

According to Stephen Gardiner climate change represents a tragedy of the commons. However, instead of the ranchers, we have our great grand parent’s decision impacting our climate today. Climate change effectively started during the Industrial Revolution and our actions will be impacting future generations. Since the future generation does not have a voice in the conversation, it’s hard for us to put off current needs for future needs. This is further exasperated by the fact that we cannot even work to improve conditions for our own children, let alone some faceless grand child or great grandchild down the road.

Interstellar offers a glimpse into why this is so difficult. First, there’s clearly gaps in education, Interstellar points this out through exaggerating what a lot of school boards are currently doing, they go to the extreme to say that the Apollo missions are faked as a propaganda tool to destroy the Soviet Union. Second, Matthew McConaughey is one of the few forward thinking individuals, but he knows that we are continually leaving worse and worse conditions for our children, as a farmer he can see how poorly we’re fighting the blight that is killing our crops. Third, the time dilation he experiences being close to a blackhole allows him, while he’s still young, to see the full effects of his generations decisions on his children. He’s fully impotent to do anything about it, but he knows that the choices they made have fully doomed his children. Finally and I think most impactful, is the scene where Murph dies. He sees his grand children and great grand children and doesn’t even acknowledge them. He did everything he could for Murph but had no interest in seeing how all of this impacted his’s child’s children. Furthermore, Murph didn’t seem to want him to try to bridge that divide. Rather than try to build a relationship with the world as it was she pushed him to reunite with a crewmate that came from the same “world” as him.

All of these indicate that we have a serious tragedy of the commons problem. That education is required to even have a hope to combat the tragedy of the commons for climate change. That we must figure out a way to see past the here and now and create a seriously forward looking plan. That we cannot simply rely on a few forward thinking people because even they are limited in how much they can look to the future.

This is a serious concern because we now have a leader on the environmental committee in the US congress that doesn’t accept the evidence presented by scientists. Furthermore, the fact that lawmakers aren’t scientists seems to excuse them from understanding what people are saying about climate change.

We cannot expect some “they” to come and allow us to rescue ourselves with “their” help. We have to figure this out on our own. We’re failing miserably right now.

Another book that does a good job outlining these intergernational problems is the Forever War.

Companies forget that they pay wages; don’t understand complexity of economy

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Apparently 68 out of the top 100 retailers are concerned about flat or falling wages. Huffington Post did some poking around their 10-K forms and aggregated the top risks for the top 100 retailers. Huffpo found that low spending, unemployment, and falling or flat wages were the top 3 items. To me this is really interesting. Apple was recently identified as part of a wage fixing scheme that looks like it could have cost employees something on the order of $3.2 Billion, Wal-Mart has cut hours of their employees as to prevent themselves from paying for ObamaCare for those employees, which means that those employees have to pay for their insurance out of pocket, as they have to insurance now.

All of these things together impact the web of our economy. What we’re seeing is local optimization which leads to sub-optimization of the entire system. Companies that are cutting wages or benefits to maximize their profits are likely taking a cut out of their own revenue stream. It’s likely that many Wal-Mart employees shop there because it’s the lowest priced place in most areas for most goods. The fact that WinCo is Wal-Mart’s largest threat now, is pretty indicative that wages are falling.

When Henry Ford raised the wages of his employees to a real living wage, it wasn’t out of kindness or some perceived social good. It was so that his employees could buy his car. If a large mass of people are unable to buy a good you produce because of your own wage policies you’re creating a problem for yourself. Furthermore, economies are networks, they interact with each other. Each and everyone of those employees would then become representatives for the Ford brand and be able to show off the good they were manufacturing. With every new employee hired, Ford knew that there would eventually be one more sale.

Companies today have clearly forgotten this. Retail is one of the largest segment of our economy, with a huge number of employees. If this entire swath of our population cannot afford to buy consumer goods, then it’s likely that we’re going to be continually be at risk for another recession. People buying stuff is what keeps our economy going. If the companies that staff the most people do not pay them well enough to keep buying stuff beyond food, then we’re at a great risk.

Wages are a very difficult thing. There’s a Socialist party in Seattle that’s trying to get minimum wage up to $15, but offered a job starting at $13/hour. Employees have gone on strike to get higher wages. I’ve written about it several times, however, whenever companies are indicating that low wages are a risk to their business, it’s time for them to start looking in the mirror. There are large retail industry groups, these groups should start to investigate the root cause of these risks and propose recommendations to address these concerns.

Should the Fed look to take action to protect the companies from themselves in order to protect the economy? Should the minimum wage be increased to address the problem? Should the government take action at all, it’s the businesses fault if they fail because they didn’t pay their employees enough. What do you think?

Retail and payment intermediaries

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In recent months there have been multiple instances where a major retailer has had their data infrastructure breached. This has resulted in millions of customer’s credit card information being compromised and stolen by some variety of criminal organization. It’s likely that the organization used skilled computer experts to hack into the system in some fashion. I also would not be surprised if some type of social engineering was used to ease their access to the data systems. Furthermore, if their Point of Sales devices were not fully secure that information could be gathered using a credit card that could also read information from the system.

This is the problem that applications like Google Wallet and Paypal are trying to solve. They are trying to position themselves as an intermediary between the customer and the retailer to protect the consumer and provide a common transaction method for many platforms including in person point of sales. I think the fact that I’m just now thinking about this has really shown that companies like Google and Starbucks have failed at showing where the true value in their product is.

I didn’t come to this conclusion without help though. Truthfully, it’s because of PalPal ads that I’ve been seeing on Huluplus. This ad walks through how unsafe we are using our credit cards with online retailers and that they protect your creditcard and bank account information from ever being seen by the retailer. Which, is a really powerful argument to use their services. Of course, that’s if you trust PayPal as an organization.

Personally, I’m concerned about using PayPal as they’ve had their own networks hacked with some account information stolen. They aren’t perfect, and honestly it’s likely going to be impossible to maintain and prevent any data breaches, but a company like PayPal should have that as their goal.

With that in mind, it’s kind of helped me think of the true value of both cash and a BitCoin like solution. At this point, it’s pretty clear that BitCoin has been compromised at least on some level. It’s not truly anonymous any more. Cash is still though. It’s the best way to buy anything from a store. It also reduces the rate that you spend your money compared to buying everything with a card. As you actually see the money disappear. Although, some times it doesn’t feel that way, especially when you’re out drinking at a bar.

I’m not sure I truly trust any of the large companies that offer these intermediary services. PayPal, Google, Apple, Samsung, Starbucks, and etc… all have their own version and all of these companies make money by locking you into their services. Google, Apple, and Samsung have the most incentive and potentially access, as they are selling you the only other thing you’ll have with you besides your cards, your phone. Locking you into not just their device but payment methodology is powerful. Not because it keeps you on their network, but also because it provides them with a huge amount of information about the rest of your life. Google likely will already have a lot of it based on your search history, but they don’t know what you’re actually buying. At this point they don’t have the full data to connect search results to purchases. Using Google Wallet closed that gap and provides a really valuable set of data for their customers.

Intermediaries are going to be really important moving forward because they will help reduce customer risk. It’s going to be important to figure out how to balance the risk of not using an intermediary with using one and providing them with massive amounts of data as well as extremely personal data that if all your eggs in one basket could be devastating.